We are at the dawn of driverless cars, and that means car ride services will soon replace many cars and their associated car loans. Lending services such as Rocket Mortgage, which says it can approve a mortgage loan in eight minutes, have forever changed consumer expectations on convenience and speed in the lending process. The rise of the importance of mobile platforms means any credit union that is behind that curve will lose members.
While all of these changes raise a very high bar for credit unions, they are nothing compared to the disruptive effect of artificial intelligence, which is coming soon. We already have robo-advisors for investment services and artificial intelligence has been shown to provide a more reliable medical diagnosis than doctors. If artificial intelligence can make a medical diagnosis, is there any job or profession that will be immune to some use of artificial intelligence, especially if the artificial intelligence can self-learn, such as IBM's Watson? When artificial intelligence can seamlessly interact with people as another person would, gather and analyze data instantaneously, and provide highly customized advice and services to consumers, it will be a monumental game changer. Yes, I know Siri is lame, but her very bright big sister is just around the corner.
If that is not enough to make you want to retire early, let me throw one more disrupting event in the mix. The tipping point for many financial institutions will be when the Amazons of the world form and fully integrate financial services with artificial intelligence in their digital ecosystems. Want to use a car? Amazon will send a car to you as you walk out the door per their car ride subscription plan (Prime Members get a discount). Want to buy a three-bedroom house in your school district within a stated price range with a swimming pool? Alexa will send you a list and video of the houses and make an appointment for you to see them. You negotiate with the sellers by text and agree to terms, which are documented digitally. Now for the mortgage. You are already a customer of Amazon Bank. You authorize Alexa (with biometric verification) to fill out a digital loan application (used by all of Amazon's partner mortgage lenders) and send it to you. You review the application and authorize Alexa to find you the lender with the best mortgage terms. You agree to Alexa's recommended lender choice. The lender underwrites the loan in five minutes (beating Rocket Mortgage by three minutes) and the lender sends the loan package over to you for a digital signature. You close on the house using the title insurance agency and closing agent recommended by Amazon. From start to finish, the loan process took almost an hour and you are disappointed it took so long. Alexa never directed you to a credit union.
How will credit unions compete with these massive digital ecosystems using artificial intelligence? In order to qualify to be a competitor in the game, credit unions will need to have similar technology, including artificial intelligence tools. Credit unions will compete where they have always competed … on trust … giving members the confidence to know that the credit union has their back. There will be those who do not trust the Amazons and Googles and want to rely upon people and institutions they personally know and trust. Physical branches and member service representatives will continue to exist, but there will be fewer branches and member service representatives per member to reduce the cost of services to the members and increase the efficiencies that artificial intelligence will bring and members will demand.
The four questions for survival are: Do you need more resources and expertise to be competitive in this changing marketplace? If not, do you have the scale and financial resources to make the changes on your own? If not, are you planning to use mergers or collaboration to obtain scale? Once you have the scale to afford the resources and expertise, are you willing to make the changes in the credit union's business model needed to respond to the changing marketplace? The future is coming whether we want it to or not. If your credit union is not planning and acting to meet the challenges of the future now, it will be too late once artificial intelligence comes of age and you read about the launch of Amazon Bank.
Guy A. Messick is an Attorney at Messick Lauer & Smith PC. He can be contacted at 610-891-9000 or [email protected].
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